How Risky Is Discounting for New E-Commerce Brands?

Discounts have been around as long as retail has. And on the Web, the flash sales wave pushed them front and center.

But I was still surprised when I recently visited certain non-flash sales e-commerce sites to find that young startups with aspirations of creating brands with cachet would be offering discount promotions to first-time buyers right on their homepage.

So I asked three of them that offer homepage discounts in exchange for an email address — menswear maker Bonobos, high-end T-shirt startup Pickwick & Weller and women’s jewelry seller BaubleBar — to explain how they think about the trade-offs of discounting as an incentive for someone to try out their wares with the risk of the sale creating the perception to first-time visitors that they are a discount brand.

The goal for all of them isn’t hard to decipher: Offer first-time customers an incentive to buy, and perhaps one day they’ll end up buying full-price items, too. And even if they only provide an email address to get the discount code, but don’t buy right away, the e-tailer has a way to contact that person without having to spend marketing budget to bring the person to the site through advertising.

“We consistently offer that 20-percent-off offer to try the product, and I would never take that away,” said Pickwick & Weller CEO Ryan Donahue, who co-founded the company with Ashton Kutcher. “Online, people have a wait-and-see approach with things they’re unfamiliar with. Giving them any little nudge is critical.”

But having the first thing that first-time visitors see be a discount offering is a fine and risky line to walk for sites with above-average prices that aspire to above-average brand cachet. Pickwick & Weller, for example, sells some men’s T-shirts at $65 a pop.

“You have to know who you are and where you stand,” Donahue said. “Once you begin to train an audience to only buy and react to a discount, it’s dangerous.”

As a result, Donahue said, it’s unlikely that his company will offer more than the first-time-visitor discount.

At Bonobos, a 20 percent discount offer has greeted all new visitors to the homepage since October, according to Craig Elbert, the company’s VP of marketing. But he said in an interview that his team is considering tweaks to that offer. Right now, the marketing staff is testing out different approaches, such as discounting a bundle of clothes for first-time buyers, or eliminating the pop-up altogether.

“This has created a lot of internal conversation,” Elbert said of the promotion.

Next, his staff is going to evaluate the quality of the different groups of customers before making a decision on whether the homepage promotion stays, goes or is tweaked.

“A good marketing organization should have a healthy tension between brand and performance marketing,” he said. “Something like a pop-up is where those can bump up against each other.”

The insinuation here is that some in the organization feel that the homepage sale offer does not align well with a high-end brand.

BaubleBar is another young commerce company that aspires to creating an above-average brand. But it also turns to discounting on its homepage — a 15 percent offer to lure first-time visitors.

BaubleBar doesn’t want to be viewed as a discount brand. But at the same time, it can be difficult for the company to convince shoppers online that it is selling what it considers high-quality jewelry because of its affordable prices, according to co-founder Daniella Yacobovsky.

“Our focus is always getting customers to trial our product, since they then understand the value proposition and repeat heavily,” she said. “We try to remove any and all barriers to making a first purchase, which includes offering free shipping and free returns, as well as a small discount on their first purchase.”

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